30740: Borrowing from one who stipulates life insurance as a condition of giving the loan

I work in a company that gives interest-free housing loans, but they stipulate that the employee must have life insurance. That is so that the company will take the money it is owed from the insurance company in the event that the employee dies before praying off the loan. Is this loan halaal or haraam? Please advise us, may Allaah reward you with good.

Published Date: 2002-07-21

Praise be to Allaah.

Taking good loans which are prescribed in sharee’ah and which
do not involve interest is permissible, but it is not permissible to make
that dependent upon conditions which are not Islamically acceptable. That
includes the condition mentioned in the question; what renders it
unacceptable is the fact that the company stipulates that the person who is
borrowing the money is required to take out life insurance. There is no
doubt that life insurance – and indeed all kinds of insurance – is haraam,
and it is a form of gambling.

Shaykh ‘Abd al-‘Azeez ibn Baaz (may Allaah have mercy on him)
said:

Insurance on one’s life and possessions is forbidden
according to sharee’ah and is not permitted, because it involves ambiguity
and riba (usury, interest) and Allaah has forbidden all kinds of
transactions that involve riba and ambiguity out of mercy towards the ummah
and in order to protect them from harm. Allaah says (interpretation of the
meaning):

“Allaah has permitted
trading and forbidden Riba”

[al-Baqarah 2:275]

and it was narrated in a saheeh report that the Messenger of
Allaah SAWS (peace and blessings of Allaah be upon him) forbade transactions
that involve ambiguity. And Allaah is the source of strength.

Fataawa Islamiyyah, 3/5

On this basis, it is not permissible to participate in
housing loan programs where the company stipulates that the beneficiary must
take out life insurance.

“And whosoever fears Allaah and keeps his duty to Him, He
will make a way for him to get out (from every difficulty).

And He will provide him from (sources) he never could
imagine. And whosoever puts his trust in Allaah, then He will suffice him.
Verily, Allaah will accomplish his purpose. Indeed Allaah has set a measure
for all things”

[al-Talaaq 65:2-3 – interpretation of the meaning]

“and whosoever fears Allaah and keeps his duty to Him, He
will make his matter easy for him”

[al-Talaaq 65:4 – interpretation of the meaning]

Whoever gives up something for the sake of Allaah, Allaah
will compensate him with something better than it.